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With the passage of Proposition 206 in November, Arizona became one of the latest states to mandate a minimum-wage hike.
In addition to increasing the base rate incrementally to $12 an hour by 2020, the ballot measure also ensured the state’s workforce would receive mandatory paid sick leave from employers.
While voters overwhelmingly supported the proposition, its passage — like similar efforts in other states — was met with fierce opposition by critics who say the across-the-board wage increase will have a devastating impact on Arizona’s small-business owners, consumers and the entry-level workers it was ostensibly designed to help.
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Impact on entry-level workers
Proponents of the minimum-wage initiative frequently cite their dedication to improving the lives of the state’s working-class families.
The Fairness Project touted Proposition 206’s passage, along with measures in other states, by celebrating the “8 million workers [who] have secured higher pay through direct democracy in 2016.”
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Not everyone agrees that arbitrarily raising the minimum wage would, by and large, help these workers at all.
In an interview with Western Journalism, the Arizona Chamber of Commerce and Industry’s Garrick Taylor maintained that “higher mandated wages means fewer jobs,” adding those trying to enter the job market are set to be among the most directly — and most negatively — affected by the new law.
Acknowledging the pay bump likely “looks like a good thing” to low-wage workers seeing an increase in their paychecks beginning Jan. 1, Taylor said the net result of the initiative will be increased competition for a decreasing number of entry-level jobs.
“We believe the passage of Proposition 206 is actually going to harm the very individuals its proponents claim to want to help, namely those outside the labor markets, those who are unemployed, young people who are just getting started in their job life or career life, and those with fewer skills who are not yet positioned for higher-paying jobs,” he said.
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The reason, he concluded, is rooted in basic economics.
Business owners who would “otherwise direct resources to new hiring,” Taylor said, will in many cases be forced to use that capital to maintain their current staff’s increasing payroll.
Though some companies might be able to absorb the added cost, the chamber has repeatedly warned many other employers are likely to embrace automation as a way to reduce expenses.
How do businesses respond when entry-level hiring gets too expensive? Automate! Robots of the world unite! pic.twitter.com/R8OA4XfonO
— Arizona Chamber (@AZChamber) December 20, 2016
Bill Riddle, co-owner of Arizona-based Valle Luna restaurants, joined the chamber in a lawsuit challenging Proposition 206’s constitutionality. He told Western Journalism he is concerned not only about the potentially devastating financial impact the initiative will have on his business, but also the toll it is set to take on his staff.
His primary concern lies in the fact that tipped employees, who often already earn well beyond the federally mandated minimum wage, will all see pay increases as a result of the proposition — at the expense of non-tipped workers who might be more deserving of a raise.
While he hopes to be able to keep all of his employees, Riddle said the future is hardly certain.
“We hope not to have layoffs,” he said, “but no one knows the effect that this wage increase and price increases will have on the purchasing dollar.”
The Arizona Republic’s editorial board offered its take in an Oct. 25 editorial describing the proposition as “a wrong-headed effort” that will not only “hurt those it aims to help” but place undue mandates on businesses.
Impact on small businesses
In the fight for a higher minimum wage, activists commonly vilify corporations like McDonald’s and Walmart for failing to offer unskilled workers a “living wage.”
While protest rhetoric might cast these corporate giants as the villain, Taylor said they are not the businesses being irreparably harmed by the push to increase the minimum wage.
“Those companies are actually, via the economy of scale, probably better conditioned to weather the fallout from Proposition 206,” he said.
On the other hand, he predicted it will be much smaller “mom and pops that will be disproportionately affected.”
The steep increase in labor costs, Taylor said, could devastate small-business owners already operating on razor-thin margins.
“Who stands to get hurt? Those businesses, especially small businesses that cannot easily weather the storm that is caused by a mandated nearly 50-percent wage hike over the next few years,” he said.
Riddle counts his business among those set to see a deep impact from the initiative.
He said Valle Luna has always placed a premium on the well-being of its employees, going so far as to offer a “much higher quality” paid-leave plan than mandated by Proposition 206. Nevertheless, the specific requirements he now faces will require him to scrap the current plan and start from scratch.
“I never decided to go to an attorney until after Prop 206 passed and we then received the 11 pages of rules, definitions, guidelines, reporting, record keeping and legal requirements exempting unions and pertaining to the sick-time entitlement,” Riddle said. “We had believed that our existing plan would suffice, but because of the detailed and specific requirements of Prop 206, [it] will have to be redesigned — probably to the disadvantage of our employees.”
In a press release announcing the restaurant’s opposition to the proposition, Riddle went into some detail about the expected financial cost of the minimum-wage hike.
“The company projects the total of these tipped employee costs to then be $2,327,786 during the term of Prop 206, ending in 2020,” he wrote.
Impact on rural communities
Another common gripe about Proposition 206, as Taylor explained, is a lack of “calibrations that adjust for the type or location of the businesses.”
While urban areas with more job opportunities and more active economies might be better suited to absorb the cumulative impact of an increased minimum wage, many critics lament the fact that Proposition 206 and similar initiatives across the U.S. fail to take that distinction into consideration.
For that reason, Taylor said employers, workers and consumers in more rural areas of the state could see an even bigger impact than their metropolitan counterparts.
“I would argue rural businesses are going to be disproportionately affected,” Taylor said, adding many of these small communities “don’t necessarily have the same consumer buying power.”
By implementing a flat rate for workers in every corner of the state, he said, the proposition “does not discriminate” and treats employers the same regardless of regional or socioeconomic differences.
“If you are in rural Arizona,” Taylor concluded, “life is about to get more expensive than it is today.”
Impact on consumers
Even Arizonans who already have a good job and do not employ others, Taylor predicted, will still be affected by an unavoidable side effect of an increase in the minimum wage.
“If you sell a good or service,” he said, “you will seek to somehow make up the difference that will be required to meet your new, higher labor cost.”
Since the most common remedy is passing the cost along to consumers by raising prices, Taylor explained low-income Arizonans will once again be disproportionately impacted.
He questioned how “making life more expensive is going to help those at the bottom end of the wage scale.”
Riddle acknowledged his restaurants are already planning a roughly 5 percent price increase in anticipation of the added payroll expense.
“Our restaurants have revised menus with increased pricing in print,” he said.
Valle Luna is not alone, he added.
“To my knowledge, almost every restaurant in the state is planning menu price increases,” Riddle said, “since all of our tipped employees will be receiving significant hourly increases.”
Other critics point to less-obvious price increases expected as a result of Proposition 206’s passage. In a guest column for the East Valley Tribune, Renaissance Community Partners President Kevin Bishop predicted the fees associated with living under a homeowner’s association will see a significant spike due to increased labor costs.
Bishop wrote that he has “contacted the CEOs of several large landscape companies, which service the HOA market in Phoenix,” and determined “they will be forced to increase prices by 20 to 25 percent or be forced out of business.”
Going on to note “landscaping services alone represent approximately 30 percent of any HOA budget,” he wrote residents in such communities will almost certainly see the costs passed on to them.
“Of course, it’s not only landscapers who will be forced to raise prices,” Bishop wrote. “Every service industry in the HOA marketplace will be similarly affected. That adds up to one large increase for homeowners who reside in an HOA.”
Efforts to stop Prop 206
Well in advance of Election Day, the Arizona Chamber of Commerce and Industry was among several organizations fighting the minimum-wage initiative. The chamber dedicated resources to forming a committee meant to block Proposition 206.
Tucson Hispanic Chamber of Commerce President Lea Marquez Peterson served as Protecting Arizona Jobs — No on 206 committee chairwoman and made the business community’s argument against a blanket increase in the state’s minimum wage.
Suggesting the bill would be more appropriately named “the Opportunity Destruction Act,” Peterson predicted its passage would “hurt the very Arizonans that the initiative’s proponents claim to what to help.”
The inherent rise in the cost of hiring new employees, she argued, “harms young people, small businesses, and folks on the outside of the labor market trying to break in.”
Those entrepreneurs who put millions of residents across the state to work will be left with few good options, Peterson said.
“The dramatic increase will force many businesses — particularly small businesses — to reduce employee hours and staff levels, stop hiring or, as we’ve seen in other places that have instituted dramatic mandated wage hikes, close altogether,” she added.
Peterson said consumers in general will bear a significant burden, too, adding, “We can expect to see prices rise on everyday goods and services.”
After the proposition passed, the Arizona chamber joined other business groups and leaders across the state in filing a lawsuit challenging its constitutionality.
Days before the minimum-wage increase was set to go into effect, the Arizona Supreme Court refused to grant a stay that would delay the increase until justices convene in February.
Taylor explained the main points of the lawsuit, taking time first to address critics who say the lawsuit was filed without regard to the will of the people.
“You can only bring these constitutional challenges after the measure has passed,” he explained.
Furthermore, he said the chamber’s position is that the lawsuit actually does affirm the desire of Arizona’s electorate as demonstrated in an earlier election.
“Regarding the will of the people, what about the will of the voters who back in 2004 adopted Proposition 101, which said that ballot initiatives that would have some sort of effect on the state’s general fund would have to identify a revenue source to pay for that?”
That perceived lack of fiscal accountability is one of the primary reasons the chamber lists for its participation in the lawsuit. Another, Taylor said, involves an apparent oversight in the way the initiative was worded.
“Proposition 206 was too cute by half,” he said. “It exempted state employees from its provision, but said nothing about state contractors.”
That missing exemption, Taylor claimed, means some state contractors are “not going to be able to continue providing services” because of the additional costs.
Western Journalism reached out to two pro-Proposition 206 organizations, The Fairness Project and Living United for Change in Arizona, for a reaction to the common complaints of opponents. As of the deadline for this report, we had not received a response.